Contributor Jessie Karangu examines key questions about ESPN’s new direct-to-subscriber “Flagship” streaming service, set to launch less than a year from now.
The next evolution of ESPN is set to launch in less than a year, when the network will finally distribute its top tier content direct-to-subscriber via what is known internally as “Flagship.” In the world of fragmentation, ESPN is offering the consumer with choice: Watch the biggest games of the year either through your cable provider, through a multichannel app like YouTube TV or through an ESPN owned and operated app that is curated by the Worldwide Leader.
It’s a bet that could transform the future of television. The app will be gamified, providing viewers with the ability to connect their ESPN Fantasy and ESPN BET accounts to follow their own bets and teams as they’re watching any particular game. It puts all of the ESPN+ library under the same rooftop as the NBA Finals, the full Monday Night Football schedule and the College Football Playoff. Distributors are already beefing up their offerings in response. Charter recently signed a deal to continue distributing TNT and Max to their subscribers to keep fans of MLB, NASCAR and March Madness at bay. Puck reports ESPN’s Flagship was a major impetus for extending their deal.
There are still some looming questions though as the industry prepares for one of the decade’s biggest game changers.
Will the app secure local rights deals with MLB, NBA, NHL or in major markets?
As television subscribers have dwindled on cable and satellite, so has the ability for distributors to pay regional sports networks a fee to showcase their feed to viewers. The rapid decline has forced the ongoing saga of Diamond Sports’ bankruptcy. The model is broken and it needs an entity to fix. ESPN has been vocal about using Flagship as the answer. “Every day, it seems I’m reading about another team that is changing their approach in terms of local, in-market games. We want to be at least part of the solution. We are very interested in stepping up here,” ESPN President Jimmy Pitaro said during a recent media day promoting what’s in store for the network.
What that looks like isn’t known at this time. MLB wants to form a national regional sports network of its own that combines all of its teams’ local rights and distributes them traditionally on cable along with a direct-to-consumer app. It is already putting that approach into practice in San Diego, Denver and Phoenix, but not everyone is on the same page. Big market teams like the Yankees and Dodgers have a solid foundation with their RSNs and it is believed that it would be hard to convince them to give up the profit margins they’re experiencing at the moment. The Dodgers, for example, are expected to make over $300 million a year until 2038 from their deal with Charter. The NBA and NHL on the other hand are taking a wait and see approach. Each league has said it has the infrastructure to consume local rights in any of their markets whenever necessary, but have thus far agreed to stick with Diamond for at least one more season.
Meanwhile, ESPN is already building a pathway for local teams to find their way to Flagship whenever they’re ready. Fans in Washington, DC and Boston can watch local games from Monumental Sports and NESN directly on ESPN’s app. It is being reported that ESPN isn’t as interested in renewing their deal with MLB as they would’ve been 10 years ago but would still love to play a role in the baseball television ecosystem through local rights. If ESPN actually goes through with this approach, it could be the trigger that sets off local teams aligning themselves with the biggest name in sports. It also provides more of an incentive for fans to want to get the ESPN app even if they already subscribe to cable. Aggregating local rights onto one app could separate Flagship from the rest of the pack.
Will the app acquire rights to Fox Sports events?
Another major coup that could set ESPN’s Flagship to another stratosphere could come from one of Disney’s biggest shareholders, Rupert Murdoch. Wells Fargo analyst Steven Cahall recently made an appearance on Puck podcast “The Town” and speculated that Fox Sports streaming rights could be acquired by ESPN. This would give Flagship access to Sunday afternoon NFL games, multiple Super Bowls and the World Series among other major properties. Venu Sports was supposed to be the first direct-to-subscriber home of Fox Sports — the app’s backend is even built by Fox — but a deal with ESPN could be more lucrative and less of a headache, allowing it to recoup some of its rights fees and avoid Venu’s legal woes.
In addition to being co-owners of Venu, ESPN and Fox are college football’s biggest kingpins and the two biggest forces in sports right now. Without an ownership stake for Fox in Flagship, it is speculated that regulators would be more amenable to such an arrangement because ESPN would be serving solely as a distributor, a la Comcast and DirecTV. During the podcast, Cahall said “Fox’s decision to sublicense content where it’s not part of the ultimate distribution is very different in the eyes of the regulators than ESPN simply licensing in this content.” Fox would also get to dip its toe into streaming without hemorrhaging money beyond what it has already lost in Venu Sports. Fox CEO Lachlan Murdoch has hinted at wanting to acquire assets and could use this newfound capital to build a mini empire that’s too small to lose money yet too big for distributors to be without. Such a transaction would still need league approvals and given the leagues’ reaction to the launch of Venu Sports, both ESPN and Fox may want to avoid making their partners mad again. Given Warner Bros. Discovery’s financial situation, it would not be a surprise to see some of their events distributed on Flagship on a non-exclusive basis if Disney is willing to pay them. Flagship could end up simply being the successor to what Venu Sports was supposed to be.
Will the app distribute other sports networks?
There are many other sports networks further down the cable lineup with niche content relevant to select audiences, such as BeIN Sports, Gol TV, Willow Sports and Fubo Sports Network. Is there interest from ESPN to distribute these smaller outlets as well? Willow recently carried the United States’ upset in the T20 Cricket World Cup, which spread like wildfire on ESPN’s social channels. Flagship could also serve as a means by which to boost the number of subscribers to league-owned networks like NFL Network and NBA TV. ESPN already collaborates with both during the NFL Draft and NBA Summer League respectively, but a move to Flagship could create the more formal partnership that was expected if the leagues took an ownership stake in ESPN.
Will the new app help save ESPN BET?
ESPN BET has struggled to gain a foothold on the betting industry. It currently only has 3.9 percent of the market share after previous estimations that it could take up to 20 percent vs. FanDuel and DraftKings. The ability to watch your bet prosper or dwindle on your smart TV could help win some viewers over who don’t necessarily enjoy the experience of going back and forth between their television set and their phone or even back and forth between apps. It could also raise name recognition for the service that has seen ESPN’s biggest faces either criticize it or openly promote rivals. It will be a challenge to get to 20 percent market share — especially when ESPN’s main mission will be getting folks to use Flagship in the first place — but it does provide a unique experience sports fans haven’t become accustomed to yet.
Will the app help create other revenue streams for ESPN?
Dick’s Sporting Goods has had a relationship with ESPN in the past selling merchandise of athletes and teams. ESPN could try to leverage this or form a relationship with Fanatics, a leader in sports merchandise, to convince viewers of a particular game to buy jerseys, pop up shirts or even memorabilia right on the app. ESPN has also recently entered into the world of experiences. Imagine watching the Masters and being able to bid on the app for the chance to play 18 holes at Augusta National? The point of Flagship is to provide users with a seamless experience that is a one stop shop for anything a sports fan desires. It could create multiple revenue streams that haven’t been fully utilized around sports’ biggest events of the year, which ESPN has the rights to stream. Amazon has been leading the way in connecting sports viewers with e-commerce while watching a game. According to a report from the Washington Post, “QR codes that appeared in ads (during Amazon’s Black Friday NFL game) had a more than 350 percent higher engagement rate than during other games. The QR codes in many cases led directly back to Amazon shopping.”
How will FAST channels be implemented into the app?
Disney+ has recently been on a mission to keep viewers locked in to the app, and a recent strategy has been the addition of FAST-style channels. ESPN has a library that every other media outlet envies between sports films, classic games and the most obscure rights in the world. Why not turn them into FAST channels rather than having it collect dust?
ESPN could relaunch ESPN Classic and re-air old games in relation to whatever is happening in reality. If Aaron Rodgers is playing on Super Bowl Sunday, air a marathon of Rodgers’ classic games from Cal, the Packers and even the Jets — many of which aired on ESPN. They could also easily create marathons around sports films, give Pat McAfee and Stephen A Smith their own channels to develop programming and replay their respective shows, make ESPN the Ocho a 24/7 experience (it already lives as a FAST channel on the ABC app), air some of the network’s biggest investigative pieces and journalistic round tables around the clock (quieting those who speculate that ESPN isn’t dedicated to sports journalism) and create a mainstream avenue for HBCU sports to live on all day, everyday. ESPN already has the tools, it just needs to navigate them appropriately. FAST channels are inexpensive, keep viewers aligned with your brand and are simple to operate. Fox has surprisingly become a force in streaming without much investment through Tubi and its array of FAST channels. 66 percent of viewers in the United States are watching FAST channels, which have arguably become one of ESPN’s biggest out of home competitors.
Will cable subscribers be able to access Flagship?
After a wild back and forth between DirecTV and Disney before college football and NFL season that led to Disney’s channels temporarily being removed, both outlets agreed to a new modern distribution deal. Part of the deal included the right for DirecTV to distribute Flagship at no additional cost. It is unknown yet whether other telcos like Charter, YouTube TV and Comcast will receive the same privileges.
Will a tech giant partner with the app?
When Disney+ launched, it offered Verizon subscribers the opportunity to hop on free of charge. This was instrumental in helping to juice the app’s initial number of subscribers. ESPN could elicit the help of Verizon, T-Mobile, Google, Apple or Amazon to help launch its app in exchange for a minority stake and data on consumers. This is the line of thinking executives reportedly have on how to best launch the app, according to Front Office Sports.
Tech giants have expressed their interest in entering into the content space, yet most have failed. Flagship gives them the opportunity to be invested in content that has already proven popular with American audiences. It keeps their own respective customers happy, helps ESPN pay for its impending rights fees and the expenses of operating a new app, and gives the app a boost in subscribers instead of starting from zero.
Flagship is expected to be implemented into the Disney streaming ecosystem already, but any boost that distinguishes itself from rivals could prove helpful to the network’s bottom line. Hypothetically, it could be an app that is automatically installed on the devices of a tech partner.
